Question

1. Sunshine Lodging Inc. (SLI) is a Florida-based hotel resort with the following projected unlevered free cash flows (UFCFs) for the next 5 years, given in USD million: Year1: 12.0 ; Year2: 13.8 ; Year3: 14.9 ; Year4: 16.5 ; Year 5: 18.0. After year 5, UFCFs are projected to grow at an annual rate of 5%. The company’s weighted average cost of capital stands at 8% per annum. Estimate the enterprise value of SLI based on the DCF methodology.

a)      USD 468 million

b)      USD 472 million

c)      USD 488 million

d)      USD 493 million

2. Assume SLI has an enterprise value of USD 500 million, excess cash of USD 14 million, pension deficit of USD 8 million, tax liabilities of USD 4 million and financial liabilities of USD 68 million. Calculate its total equity value.

a)      USD 406 million

b)      USD 434 million

c)      USD 566 million

d)      USD 594 million

3. Assume SLI has 20 million shares outstanding and 5 million stock options (each option gives a right to one share). Calculate the estimated share value if its market value of equity stands at USD 400 million.

a)      USD 20.00

b)      USD 20.25

c)      USD 16.00

d)      USD 26.67

4. You have been supplied with the following data for 2 comparable hotel companies (A and B):Company A: Share price: $30; Current EPS: $2; Projected EPS: $3 // Company B: Share Price: $50; Current EPS: $2.5; Projected EPS: $4. Three of the statements below are correct, which ones?

a)      A trades on a greater PE multiple than B

b)      B trades on a greater PE multiple than A

c)      The EPS of A is projected to grow faster than the EPS of B

d)      The EPS of B is projected to grow faster than the EPS of A

e)      A is more expensive than B in terms of valuation

f)       B is more expensive than A in terms of valuation